1. The following descriptions relate to an independent public accounting firm that has as clients some governmental entities and not-for-profit entities that receive federal financial assistance. For each of the following independent situations describe the possible violations of GAO standards (Government Auditing Standards) and conclude whether or not the situation is a violation. a) A college graduate who is not a CPA is assigned by her firm to the audit of Grover County. Because she is not a CPA the firm did not send her to any continuing education courses this year or last year. b) An auditor has prepared working papers using a new computer software package. The financial statements and audit reports generated by the software are well designed and incorporate all required accounting and auditing standards. Because the program is so powerful it is also quite complex. Printouts of the financial statements and supporting schedules do not include much of the information necessary to determine that the auditor was justified in his/her conclusion. Most of that information is part of the computer program however. c) While auditing a not-for-profit entity the auditor discovered that a secretary had been embezzling money from the petty cash fund. In relation to the financial statements taken as a whole the amount stolen was not material. The auditor discussed the issue with management of the entity. The theft was reported to the appropriate law enforcement personnel and the bonding company reimbursed the not-for-profit entity the full amount of its loss. Since there was no effect on the financial statements the theft was not mentioned in the auditor’s report. d) The internal auditor of the City of Seaburg who reports to the chief financial officer of the City audited the health and welfare division of the City for purposes of expressing an opinion on the financial statements prepared by that division and submitted to a federal agency. 2. As a staff member of the internal audit department of the City of Freeburg you have been asked to write an audit program for a performance audit of the Neighborhood Housing Authority a not-for-profit entity that is included in the City’s Financial Reporting Entity. Critics of the Authority have been relentless in their opposition to the Authority and its executive director. Prepare a list of questions to which you would want answers before beginning the evidence-gathering phase of the audit. 3. In a highly controversial move the Mayor and City Council approved the purchase of the Swim and Gym a local private facility that was facing bankruptcy. The Mayor promised the public that the facility would be operated on a business-like basis and would be fully supported by user fees. No City money was to be spent on the Swim and Gym. Critics of the purchase complain that City laborers are frequently seen at the facility the facility was re-roofed during the first year and employees at the facility are considered City employees and earn the same benefits as other City employees. To quiet the vocal opponents to the operation of the Swim and Gym the Mayor asked the internal audit department to conduct an audit of the operation. You are assigned to the task. What are the issues you want to address in this audit? 4. Your audit firm has been asked to perform a Single Audit of the Kayla Public Transportation Authority. The Authority receives well over half of its $25 million in revenues from federal transportation grants and other federal programs. The Authority has a new controller whose last position was in private industry. REQUIRED: You have been asked to brief the new controller on the criteria for determining major programs for purposes of your audit.
